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S&P Global Ratings last week announced cuts to its annual price assumptions for Brent and West Texas Intermediate (WTI) crude oil, providing a sobering counterpoint to news today of reduced supply from OPEC nations.

The new assumptions are for $55/bbl for Brent and $50/bbl for WTI in 2019, respectively, or down $10/bbl from prior assumptions. The agency as well trimmed $5/bbl from its 2020 assumptions, also to $55/bbl and $50/bbl, respectively. Its view for 2021 and beyond is at $55/bbl for both Brent and WTI.

“It was just a few months ago that oil market soothsayers were calling for oil to reach $100/bbl,” S&P Global Ratings stated today. The abrupt reversal from that view—as prognosticators now countenance the potential for low $40/bbl in the near-term—reflects the ongoing trade war and news of China’s economic slowdown, and oversupply exacerbated by shale plays and gaping loopholes to sanctions on Iran’s oil exports.

High-yield energy credits posted strong gains this week from the December lows as crude prices found support on the heels of big trailing losses, and as Saudi Arabia and other OPEC constituents appeared to make quick moves to curtail supply in defense of prices. Bonds backing Ensco, California Resources, Noble, Transocean, and Weatherford International were up 4–6 points this morning from the final trades of 2018.

LCD’s Marty Fridson today noted that October and November’s worst-performing major industry, Energy, finished dead last again in December, with a negative 3.95% return as oil prices tumbled. “In the first nine months of 2018, Energy outperformed the ICE BAML High Yield Index by 1.25 percentage points. Following the disastrous fourth quarter, however, Energy ended the year at –6.37%, versus –2.27% for the overall index,” Fridson noted.

The year’s worst performer, though, was Automotive & Auto Parts, at –8.31%. Healthcare was the strongest performer, with a 1.53% gain for all of 2018. — John Atkins

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